Low Interest Spurs Housing Starts Despite Economic Woes

Housing starts are up in BC and across the country, despite falling wages, large-scale layoffs and stagnation in most economic sectors.

The Canada Mortgage and Housing Corporation reports housing starts in July were up by 41 per cent over the same month last year. The lower mainland, in particular Vancouver, led the way with an overall 15 per cent jump in housing starts in the last year.

“Low interest rates are the main factor of the demand for new housing, as more people in the rental market make the jump to home ownership,” says CMHC market analyst Charles King in the report.

He also says, though, that large number of sales of new homes are in the heritage and condominium sectors, where capitalist investment agencies are buying new high-end condos as a more secure way of investing their assets than the currently unstable stock markets.

“Today, homeownership continues to be within the reach of most pocketbooks. Housing is also preferred by many as a safe investment alternative,” King said. “A recent CMHC study into the impact of investors on the Downtown Vancouver condominium markets reported that 47 per cent of all new condominiums built in the Downtown peninsula during the 1990s were bought by investors. It appears that this trend is still evident.”

David Fairey, senior economist and director of the Vancouver-based Trade Union Research Bureau, says consumer desperation is the main cause of the buying spurt, as people try to take advantage of the low interest rates and resulting favourable mortgages to buy a home before they go up again, putting home ownership out of reach once more.

“People aren’t buying houses because they have more money,” he said. “Rather they are taking advantage of the lower interest rate to buy homes now before they go up again.”

 

Fairey says it is no coincidence that increasing housing sales and residential construction across the country, and especially in BC, are accompanied by skyrocketing consumer debt loads due to mortgages. “Personal consumer debt is at an all-time high,” he said. “People are trying to buy houses and condominiums with less money in their pockets. Right now, lending institutions are happy to accommodate this because of the low interest rates of the Bank of Canada. That will change when they start to rise again.”